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  • #81
  • Apr 14, 2010 6:36am Apr 14, 2010 6:36am
Quoting Mr J
Considering that a trader deals with stats and probability, it's a question for a trader as well. I can't imagine a good trader without a decent grasp of the underlying maths.

We are talking about applying knowledge not discussing the mere possibility of random numbers.

No it isn't. The difference is only a shuffling of numbers. Same principle. The fact that traders can manipulate winrate, that events are correlated etc is irrelevant.

[i][b]The fact that is the same principle is not an issue here. The issue is how to deal with this...

Making general statements about the definition of randomness shows that you are well acquainted with recent works like black swan and randomness theory applied to social constructs. But it doesn t show that you have logically or empirically proved that martingale is a poor strategy. I will be more convinced by actual figures based on real price movements and back test of real price action , different entry points, money management and stop losses.
I don t trade with simple martingale but i do my homework. and i have seen on several currency pairs that the randomness you mention does not affect the positive outcome (i.e winning trades) with some time frames. Of course previous price action is not necessarily useful
to predict future price action. However you should proceed like this :
take your account size, say 50,000 $. Define a maximum acceptable loss, say 20,000$. Then go backwards on all pairs and see what is your best initial lot entry, when you should invest randomly and double it and observe the results. I don t even suppose that the trader should have any particular knowledge - fundamentals or news - and for the purpose of applying pure randomness to trading, let s say that all entry points are predictible, say you double at every 200 pips loss. or something similar. All exit points should be when on profit . If you do this little exercise you will find surprising results...like you will not see any curve steep enough to wipe out your account.
Yes, every tick can be counted as a random even but you are not going to bet on evey small tick but on higher tf and see that randomness on currencies is pretty well contained in defined swings (series). But of course if you have 20,000 $ account and start trading 50,000 $ lots with 500 $ initial margin deposit and double it immediately you will get wiped out in a down trend like the recent euro $ - december - february rout -
Andreyou
  • #82
  • Edited 12:24pm Apr 14, 2010 8:45am | Edited 12:24pm
Quoting andreypu
Making general statements about the definition of randomness shows that you are well acquainted with recent works like black swan and randomness theory applied to social constructs. But it doesn t show that you have logically or empirically proved that martingale is a poor strategy. I will be more convinced by actual figures based on real price movements and back test of real...
I realize this isn't addressed to me. I get what you're saying, and narrowed it further (should apply to chart and/or news reasons).



If a larger area is 'certain' to happen and the space in this area random, then SL is small and martingale is possible. A black swan originating in that random area is just as possible.
It's more likely that the larger-area reason be treated for a larger SL and a respectively smaller leverage, given the random space has something in it that adjusts the true condition that one's reason has to fit into.

An advantage of having a 'certain' area/reason's area of affect/applicability is that once one reason has been proven right, a reason that depends on the proven one is relatively more certain.

Thus, if one tracks key turn points while trading the smallest of a layer of well-reasoned areas that are under the turn points' influence, certainty is maximized and a black swan event originating in a random area is minimized.
Ignorance of how absolutely right a reason is, prevents justifying a martingale in this case; however, a higher leverage for all such trades is okay.

Thus, martingale use would be favorable if trade reasons switched from the first (having a large, random area) to the second general example (having areas that are relatively known), to get to a higher leverage via martingale.



I, being on demo, just keep a higher leverage; black swans hit me regularly.
Perhaps the realization above will help.
  • #83
  • Apr 14, 2010 10:21am Apr 14, 2010 10:21am
Another two cents...

While it's useful to know that if you have a system that wins 75% of the time, then you can expect a certain number of losses in a row, and thus can use a certain Martingale system to recover your trades....

most of us don't know how much our systems really win.

There's lots of good systems on FF, but they get abandoned because traders hit that 10 losses in a row and decide the system doesn't work. Very few traders have made the 1000s of trades in a single system to see if it works 75% of the time.

My most successful system is a carry. I've had about a dozen trades since August last year. My hit rate is 100%. My drawdown though is about 30%. Is this successful? Should I use a martingale, closing trades in drawdown and betting on a reversal?

The retail forex market isn't just random. It is malevolent. The system that works so great with a 3 pip spread will crash when spreads widen to 20 pips (I'm looking at you, EURGBP scalpers!). My GBPJPY martingale crashed when spreads widened to 30 pips.

I've been following an EA that uses a 1.4 multiplier for re-entries, with about 4-5 entries before a final stoploss. It takes about a 10%-15% equity hit on the SL, which occurs about every 4-8 weeks depending on settings. It earns about 30% per month. This sounds good, but how often should I expect to get 10 equity hits in a row? I think it's too much to put it on a live account unless I'm willing to gamble the money away.
  • #84
  • Apr 14, 2010 10:31am Apr 14, 2010 10:31am
Quoting andreypu
It doesn t show that you have logically or empirically proved that martingale is a poor strategy. I will be more convinced by actual figures
Are you suggesting that Martingale somehow exploits a bias in the markets, limiting the number of consecutive losses to a practical amount? I think we all act under uncertainty, and therefore there's always the possibility of losing the next trade. As long there's the possibility of losing the next trade, there's possibility of losing the next 20 trades.

Now, if there's a bias like there being a less than 1 in 8 chance of 3 losses in a row, I'm all ears . There is bias in the markets, but I doubt it's enough to justify even partial martingale. I haven't heard of any good, experienced traders using negative progressions for bet sizing, so I doubt any bias for one is significant.

[QUOTE]While it's useful to know that if you have a system that wins 75% of the time, then you can expect a certain number of losses in a row, and thus can use a certain Martingale system to recover your trades....[/quote]

We can't expect a certain number of losses, we can calculate the probability of the size of a series of consecuative losses. If you can recover the losses, why not use Martingale all the time? I'm not suggesting anyone do so, but if you think Martingale works, why not use it?
  • #85
  • Apr 14, 2010 11:04am Apr 14, 2010 11:04am
If you have 10 losses in a row or you know your system can give you ten losses in a row then i am sorry to tell you that " YOU DO NOT HAVE AN EDGE" and you should first learn how to trade.

10 losses in a row = You are far from being a trader.
10 losses = No dicipline at all, no edge and no system.

With respect to everyone here...
Never Ever Give Up!
  • #86
  • Apr 14, 2010 11:44am Apr 14, 2010 11:44am
Quoting Cobra
If you have 10 losses in a row or you know your system can give you ten losses in a row then i am sorry to tell you that " YOU DO NOT HAVE AN EDGE" and you should first learn how to trade.
I can guarantee that traders much better than you or I have had more than 10 losses in a row.

I have an example for you to counter: I flip coins and get paid 2:1. I clearly have an edge. Are you really going to suggest I can't lose 10 flips in a row?
  • #87
  • Apr 14, 2010 1:44pm Apr 14, 2010 1:44pm
Quoting Vik22
I know what you're saying, but technically there is no way to run out of levels when you bet martingale on fixed fractional.
Obv, you will be betting an amount that will render you practically bankrupt.

Actually, in my experience, people who use the martingale money management strategy, don't use fixed fractional in conjunction, just fixed lots.

I'm sorry if i'm nitpicking, but i thought...
Yes, I wasn't clear. I mean the first percentage, the smallest step in the martingale, is the actual percentage of your account. Then the next step is twice the size of the first one (so as a percent, it's a percent of the original balance before the string of losses). As a simple example: Let's assume an account of $100. In the string of percentages that I wrote, 1% is 1% of $100, i.e. $1. And 2% is 2% of still $100, i.e. $2. So it's not 2% of what's remaining. It's not a fixed fractional.

Anyway, my point is that in order to make any appreciable money with a martingale, you will need to start with a LOT of money. And at that point, your rate of return is very poor. It approaches the risk-free rate. Heeey... Maybe that's what the government does to repay its bonds: maybe they play a martingale with their HUGE bank accounts.
  • #88
  • Apr 14, 2010 3:05pm Apr 14, 2010 3:05pm
Quoting Mr J
I can guarantee that traders much better than you or I have had more than 10 losses in a row.
You got that right.

At least those of us who don't trade on demo.
  • #89
  • Apr 14, 2010 10:28pm Apr 14, 2010 10:28pm
losing in 10 events in a row does not affect the 11th or subsequent events in 'long or short' kind ( 50/50, independent and random) of events.

one may lose in those also.
  • #90
  • Apr 14, 2010 10:37pm Apr 14, 2010 10:37pm
Increasing position size because expectancy - on the basis of the probable outcome of the next trade - has improved, is a smart thing to do.

Increasing position size merely to recover recent losses, can not deliver any kind of long term edge. Neither can other MM-based 'tricks', like capping the number of size increases, or withdrawing money from the account. All any of this will achieve, over the long term, is to redistribute wins and losses. Starting with tiny lot sizes, to reduce risk of the 'death trade', will reduce return proportionately.

Increasing position size without limit increases the risk of ruin on a massive, exponential scale. Wipeout is inevitable..... eventually.
  • #91
  • Apr 15, 2010 1:17am Apr 15, 2010 1:17am
Quoting hanover
Wipeout is inevitable..... eventually.
All but inevitable .
  • #92
  • Edited 4:42am Apr 15, 2010 3:28am | Edited 4:42am
Quoting Mr J
I can guarantee that traders much better than you or I have had more than 10 losses in a row.

I have an example for you to counter: I flip coins and get paid 2:1. I clearly have an edge. Are you really going to suggest I can't lose 10 flips in a row?
You cannot use that as an example my friend. Trading is not coin flipping....LOL

Come up with something better please!
Never Ever Give Up!
  • #93
  • Apr 15, 2010 3:41am Apr 15, 2010 3:41am
Makes no difference if we win 50%, 60% or 99%, there's still a chance we lose for any number of consecutive trades. Like I've said, as long as there's a chance we can lose the next trade, there's a chance we can lose the next 10. Please show me a bias that shows this to be false.
  • #94
  • Apr 15, 2010 4:37am Apr 15, 2010 4:37am
Quoting Mr J
Makes no difference if we win 50%, 60% or 99%, there's still a chance we lose for any number of consecutive trades. Like I've said, as long as there's a chance we can lose the next trade, there's a chance we can lose the next 10. Please show me a bias that shows this to be false.
I will stick to what i have said. I refuse to believe that my setup can give me 10 losers in a row. One simply does not have an edge if you acknwoledge before you even start trading that you can have 10 losers in a row.

I am attaching my sons trading statement. I am teaching him how to trade. It is a live acc as you can see the deposits at the bottom. To lose comes with the job. To lose 10 times in a row is human failure for not having an edge or trading setup. I hope we can end this discussion here.
Attached File(s)
File Type: pdf Statement PDF.pdf   101 KB | 453 downloads
Never Ever Give Up!
  • #95
  • Apr 15, 2010 4:43am Apr 15, 2010 4:43am
Many good ideas above....I ve tried to explain something but i m not a mathematician but a sociologist and i see systems and functionnalities and patterns.. and some of you have helped me out here to develop my arguments

Yes, trading on forex is not only random it is malvolent. some one said it, support this idea. easy to see the tricks the brokers play on spreads or some big guys play in low volumes days - remember last days of december ? gy ? -
also politicians will try to impact the news and last week end with both fitch and eu governments making big decisions affecting the euro in low or no activity trading hours are a good example. i don t believe in purely mathematic solutions to trading, if it was so, robots would do all the trading, lehman brothers would not have crushed ... anyway robots can crunch numbers muuuch faster than any program an amateur can develop or use and if you add in low spreads and high frequency trading with superpowerful computers, then you see how impotent we are as simple traders using only statistics and mathematics against these forces.

what i see is that however malvolent and random these tradings are, there are patterns in a given area, i. e, the euro will not go to 0 in two days and the canadian dollar has basically ranged between parity and 1.4 to the us in the last 20 years. if that s a broad range too broad for daily trading you can narrow it further on, and here comes the mats and the martingale in. how often does a currency looses more than 15 % of its value without a single 1-2 % retrace in a few weeks ? it s rare, rare enough that you can count it on the fingers of one hand. from now one you can start back testing your system and your entry points including martingale or money management. a bad entry point + martingale may kill you. but all entry points are not equal, just to mention one thing very obvious, prices tend to trand in a narrow range most of the time (up down 100 pips ) and then make jumps of 200-300 and more pips. it is obvious that any loosing position in a range trend can be saved when a break out occurs with a larger or double size position more quickly. this is basic money management but then again you have to get in in the direction of the trend. and if you miss it you can always loose a stop loss
now i digged in the money management thread and i have found this very interesting contribution from two years ago. this guy explains it better than me


Suppose you have a method (or EA) that you believe will make tons of money in certain years. Perhaps some years it makes 2000%, and some years it loses 75%.

How can you work this toward your advantage?

Here is my example of what I could do:

With a 100K account, you can cap your risk each year to 10% of the entire account. Your upside is 2000%, or actually a 200K increase on your 10K. So the entire account will grow to 300K in a great year. In a losing year, your account could shrink as low as 90K.

After a 10% losing year, your risk shrinks to 9K (10% of 90K.) So a great year (2000%) moves the account up to 270K (90K + 180K.)

The example paints broad strokes, but conveys that a high risk/high reward system can be very profitable over the long term.
Andreyou
  • #96
  • Apr 15, 2010 5:37am Apr 15, 2010 5:37am
Quoting Cobra
One simply does not have an edge if you acknwoledge before you even start trading that you can have 10 losers in a row.
And what makes you the authority? Believing in something doesn't make it fact. To believe you can't have 10 losses in a row is to believe that at some point, the outcome of your trades is certain (in your favour). If there's certainty, why don't you just bet your entire capital in these situations, and become a billionaire within a month?

If however you are never certain on any particular trade, then you are acknowledging that any particular trade can lose. Logical consistency says that if any one trade can lose, then they all can lose, allowing the possibility of losing 10 trades in a row.

Quote
One simply does not have an edge if you acknwoledge before you even start trading that you can have 10 losers in a row

Prove my coinflip example wrong. I've shown how I can bet on coinflips with an edge and still lose 10 in a row. You claim trading is different to coinflipping, and to an extent this is true, but both games are games of probability, so my coinflipping example is applicable to trading.
  • #97
  • Apr 15, 2010 8:26am Apr 15, 2010 8:26am
Quoting Mr J
And what makes you the authority? Believing in something doesn't make it fact. To believe you can't have 10 losses in a row is to believe that at some point, the outcome of your trades is certain (in your favour). If there's certainty, why don't you just bet your entire capital in these situations, and become a billionaire within a month?

If however you are never certain on any particular trade, then you are acknowledging that any particular trade can lose. Logical consistency says that if any one trade can lose, then they all can lose, allowing...
So just how many statements do you want ? I can sense through your writings here that you are a very frustrated losing trader.
What i am trying to do here is to help you to belief in your own abilities as a trader. maybe if you stop trying to proof that the forex scale WILL eventually tip towards the wrong side, maybe if you start looking for the positive side and try to make out a positive outcome for yourself , maybe if you start talking positively about forex and maybe if you start beliefing in your own abilities as a trader the scale might turn into your favour.

Coin flipping arguments will not make a better trader of you . It merely adds to your negative outlook.

I am trying to help. Trading is simple once you get the hang of it. It took me eight years to master it. Just stop with excuses and take controll man!
Never Ever Give Up!
  • #98
  • Apr 15, 2010 8:30am Apr 15, 2010 8:30am
Mr J,

He'll never admit it.

Sun
  • #99
  • Apr 15, 2010 9:18am Apr 15, 2010 9:18am
Cobra, you could be more wrong, but you're still way off base. I'm comfortable with the possibility of losing 10 trades in a row precisely because I know I trade decently, and that if and when that day comes, it will only be a bump in the road.

Quote
maybe if you start talking positively about forex
I've spent enough time developing a reasonably objective outlook that I won't enjoy the day it turns positive. I don't need a positive outlook on forex to be a successful trader, nor a negative one to be an unsuccessful trader. Together they allow for a balanced outlook, and I think that is healthy.

Quote
He'll never admit it.
If he believes something else to be true, there's nothing to admit.
  • #100
  • Apr 15, 2010 9:22am Apr 15, 2010 9:22am
Average ranges are commonly known, yet I haven't seen many use its fully potential.
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